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STRATEGIES
 


Tarantella Buys New Moon
By Allen Bernard

June 2, 2003

In a surprise move Thursday, infrastructure provider Tarantella announced it is purchasing occasional rival New Moon.

Citing “common synergies” as the primary reason, Tarantella’s Chief Evangelist, Guy Churchward, told ASPnews the all-stock deal makes sense from a number of other perspectives, as well. Most notably, New Moon’s solution for Windows, Canaveral iQ. Tarantella’s Unix/Linux based solution can Web-enable Windows applications, but requires a degree of finagling which New Moon’s solution, which is aimed solely at Window’s installations, doesn’t require.

“We don’t have a Windows-only offering,” he said. “It’s very difficult for us to go to an account when we find somebody that is a pure Windows play that’s looking for an NT installation. We actually haven’t been able to fulfill that.”

To facilitate the deal, Tarantella will issue 7.9 million shares of common stock and, on June 5, the day the transaction is scheduled to close, do a 5-to-1 reverse stock split to keep its $0.46 per-share stock price from plummeting further. This will also help the company, which is in danger of delisting, continue to trade on the NASDAQ small cap market. After the split, Tarantella will have 9.8 million shares outstanding.

To sweeten the pot, Tarantella will also pay royalties of no less than $2 million to current New Moon stakeholders — New Moon is privately held — over the next three years.

For New Moon, the deal is all about reach. Marc Lowe, New Moon’s CEO, told ASPnews that while the company is doing well on its own, to reach into the enterprise market requires a partner who is already there.

“If you look at Tarantella’s reference list in the US they have Citibank, they’ve got Oracle … You have to get the reference account in order to get the next one,” he said. “So, it was sort of a channel issue for us.”

What Tarantella will get is a new product line, New Moon’s brands (which the company intends to continue for the foreseeable future) and $3 million in cash to bolster its coffers. The $3 million will easily offset anticipated deal costs of $500,000 to $700,000, said Churchward.

“It was a good exchange because we ended up with basically good technology, good guys, and cash in the bank,” Churchward said. “I talked to a couple of our major shareholders yesterday and they believe it’s extremely positive.”

Although an undetermined number of employees will invariably be let go, Churchward said Tarantella’s plan is to move slowly, retaining New Moon’s Santa Clara, Calif., operations center and as many employees as possible so as not to end up on the rocks like so many other IT mergers over the past few years. Eventually, both operations will be combined at Tarantella’s headquarters in Santa Cruz, Calif.

Lowe and New Moon co-founders Ed Lau and Prashant Navare will be among those transferring to Tarantella.

“We don’t want to do one of these disastrous mergers where we sort of kill off everything,” he said. “So, if you go to (New Moon’s) Web site and our Web site you’ll find that the messaging is the same but the brand and identity is different in theirs.”

Tarantella will inherit New Moon’s 200 VARs and customers as well as a product suite, Canaveral iQ, that will place the company squarely in the crosshairs of industry leader Citrix, its main rival, as it strives to reach promised break-even at the end of September. Because the two companies do compete head-to-head with their products, and since Tarantella will actually end up cash positive in the deal, Churchward sees little trouble achieving this goal even with all the work ahead.

The biggest challenge in meeting the September deadline is turning pilot installations into full-fledged roll-outs, said Churchward. That and conquering market apathy.

“That’s the challenge we have — everything we seeded, to turn that from pilots and proof-of-concepts into critical roll-outs. We’ve got an extremely loyal customer base, we just need to switch the whole thing on.”

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